DC vs. AC
There are two ways for currents of electricity to flow in a circuit: DC (Direct Current) and AC (Alternating Current). Solar panels produce DC as sunlight is absorbed, with current flowing in only one direction. The electrical grid uses AC to transport electricity, that periodically changes the direction of the flow. Inverters are needed to convert DC to AC for the solar array to tie into the grid or for facilities to use the solar power produced on site.
Standard Testing Conditions
Most often, the DC rated power of a solar array is listed higher than the AC rated power of the inverters. This is not due to losses from the inverters, which are usually ~99% efficient. Systems are designed to have a lower rated AC power because solar panels rarely generate electricity at their nameplate capacity. Standard Testing Conditions (STC) are used to rate panels at 1,000 W/m^2 solar irradiance, a panel temperature 25°C (77°F), an air mass of 1.5, as well as the entire radiation hitting the panel perpendicular to the surface. 1 Real world conditions do not supply the ideal solar irradiance at the same temperature every day, as well as many other factors, so panels only produce at full capacity about 1% of the time.
The graph below shows ~4500 hours of solar production (nearly half a year), and the DC power production as a percentage of the STC. The line at the top right corner cuts off production that lies above 80% of STC, equivalent to a 1.25 DC/AC ratio.
DC/AC Ratio
The DC/AC ratio is defined by the rated capacity of the array divided by the rated capacity of the inverters. For example, a 100kW solar array paired with an 80kW inverter would have a 1.25 DC to AC ratio. Due to the infrequency of the DC power operating above 80-90%, designing a system with a DC/AC ratio between 1.2 and 1.5 is common practice. This yields nearly the same energy generation without the extra expenses with higher inverter capacity. This lowers the Levelized Cost of Electricity (LCOE) without sacrificing performance.
Lower vs. Higher Ratios
Each system is going to be different, some with higher and some with lower ratios. A lower DC/AC ratio means that the inverter capacity is closer to the solar array capacity, and if the ratio is below 1 then the inverter capacity is higher than the array’s. When the inverter size is closer to or even higher than the array then the cost of the project goes up without much benefit for energy production. When the DC/AC ratio is too high, the system may run into clipping losses that limit the energy production.
The below graph shows clipping: when the solar array produced more power than the inverter can handle. The red region is energy lost due to clipping but the yellow region is energy gained with having a higher DC-AC ratio, with more energy being gained from the higher ratio than lost due to clipping. Simply, it is more efficient and cost effective to have more solar DC capacity than inverter AC capacity.
1https://wiki.pvmet.org/index.php?title=Standard_Test_Conditions_(STC)